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TripAdvisor Misses the Bus With Disappointing Results

By Dan Caplinger – Nov 8, 2016 at 7:45PM

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Tiny gains in revenue and falling profit margin could hurt the online travel company going forward.

It's important for companies to keep up with their industry rivals, and after strong results from its primary competitor on Monday, online travel company TripAdvisor (TRIP 2.72%) wanted to demonstrate that it could match that performance and take advantage of the same favorable industry conditions. Coming into Tuesday's third-quarter financial report, TripAdvisor shareholders weren't sure what to expect, with projections including modest gains in revenue and flat to slightly falling earnings.

TripAdvisor's results weren't able to give investors much more confidence, and they raised new worries about what the future could bring. Let's look more closely at TripAdvisor and whether the company will be able to recover from its report today.

Review lists like the best space attractions bring in customers, but TripAdvisor hasn't converted them well to actual business. Image source: TripAdvisor.

TripAdvisor loses an engine

TripAdvisor's third-quarter results didn't inspire, and once again fell short of what investors had wanted to see. Revenue picked up just 1%, to $421 million, which was significantly less than the 5% growth that most of those who follow the stock had expected. Adjusted net income of $78 million was flat from year-ago levels, and that translated into adjusted earnings of $0.53 per share. That figure was actually $0.01 per share better than the consensus forecast among investors.

A closer look at TripAdvisor's report reveals some of the same things that we've seen hurt the company in past quarters. Currency impacts held back growth, although revenue only suffered a 2-percentage-point hit from the strong U.S. dollar. Moreover, poor performance in the click-based advertising and transaction-based revenue category, which fell 10% from year-ago levels, more than offset the gains in display-based advertising and subscription revenue, as well as other hotel-related sales. Only a 35% jump in non-hotel revenue sources was able to prevent TripAdvisor from suffering outright top-line declines.

The same global trends asserted themselves again during the quarter. North America now makes up 56% of TripAdvisor's total revenue, up 3 percentage points from year-ago figures. Those numbers came at the expense of single-point drops for the Europe/Middle East/Africa segment, the Asia-Pacific division, and the Latin America business.

CEO Steve Kaufer didn't directly address the company's financial results. "In the third quarter," Kaufer said, "content and community grew quickly off of massive bases, and we continued improving our products and our platform." The CEO said that TripAdvisor's focus going forward will be on long-term delivery of a top user experience for travel customers, as well as bringing more value to its marketplace partners.

What's ahead for TripAdvisor?

The good news for TripAdvisor is that its assets continue to expand, and customers keep seeing the value of its information. Average monthly unique visitors rose 11%, to 390 million, during the quarter. TripAdvisor had more than 435 million reviews and opinions, with about 1.05 million hotels, 4.2 million restaurants, 830,000 vacation rentals, and 730,000 attractions and other experiences carrying information from the company.

Moreover, TripAdvisor is trying to make more from each of its visitors. In the words of CFO Ernst Teunissen, "Click-based and transaction revenue per hotel shopper growth improved throughout the quarter and was positive toward the end of the quarter."

Still, the challenge that TripAdvisor faces is monetizing its travel information. The best answer would be for users to book directly on TripAdvisor's website after perusing a review of a particular location. However, mobile users tend to prefer to get the information now, and then use a different application to move forward with actually booking travel.

TripAdvisor shareholders were unhappy with the company's performance and prospects, as the stock dropped more than 13% in after-hours trading following the announcement. Given the huge wins that other travel websites have seen, TripAdvisor needs to demonstrate it can catch up quickly or else risk being left behind for good.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends TripAdvisor. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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